ArcelorMittal South Africa Limited (AMSA) has issued a significant update detailing the wind down of its Longs Business.
“The Company has taken the decision to wind down the Longs Business. This comes after sustained challenges, including weak economic growth, high logistics and energy costs, and an influx of low-cost steel imports, particularly from China. Persistent high logistics and energy costs, combined with insufficient policy interventions especially those policy decisions made some time ago, namely, the Price Preference System (PPS and export scrap tax) relating to the substantial subsidisation of scrap-based steelmaking operations to the detriment of the Newcastle Works, which beneficiates South African-sourced raw materials, have left the Longs Business unsustainable.”
“Despite extensive consultations with Government and stakeholders to find viable solutions to sustain the Longs Business, progress was insufficient to avert the wind down. The Company will now transition the Longs Business into care and maintenance. Steel production is anticipated to cease by late January 2025, with the wind-down of the remaining production processes completed in Q1 2025.”
“The persistent overcapacity in the global and local markets, and unsustainably low international steel prices have further exacerbated the business’ structural difficulties. Asset utilisation in the Longs Business reached only 50% as weak market conditions necessitated the operation of its blast furnace at the lowest level technically and responsibly possible.”
Commenting on the decision, CEO Kobus Verster said: “It is with deep regret that we must take this difficult decision. Over the past year, our employees and dedicated management team have shown remarkable commitment and resilience in the face of serious uncertainty. Unfortunately, despite everyone’s best efforts, including significant engagement with stakeholders, the structural challenges in the Longs Business were not resolved. While this outcome is deeply disappointing, especially given the economic challenges facing South Africa, we remain focused on securing a sustainable future for the remaining operations.”
Impact on jobs and operations
“This wind down decision will directly affect operations constituting the Longs Business, namely, at the Newcastle and Vereeniging Works, and AMRAS (the rail and structural subsidiary). Newcastle’s coke-making operations will continue, though scaled back to reflect reduced demand.”
“There will also be a knock-on impact on certain roles in the Flat Business as well as for some personnel within the corporate support service areas. It is envisaged that approximately 3 500 direct and indirect jobs will be affected. The broader economic effect on induced jobs is expected to be significantly higher, especially in the Newcastle region. A formal Section 189(3) labour consultation process will commence shortly, and the company remains committed to a responsible process to minimise the impact on employees and suppliers.”
“The Company is actively working to realign its R1 billion working capital facility secured in 2024 to support this transition.”
Decision drivers
“The South African steel industry is currently facing its greatest sustained challenge since the 2008/09 financial crisis. International steel prices remain unsustainably low amidst record Chinese exports, with Chinese hot rolled coil and rebar prices retreating to below $500 per ton levels in Q4 2024. Furthermore, ever-higher Chinese exports have led to global announcements of production stoppages, capacity cutbacks, and plant closures, with international markets prioritising fair trade actions and reviewing decarbonisation ambitions due to affordability concerns.”
“South Africa’s crude steel production for 2024 is anticipated to be 2.3% lower than in 2023, with imports increasing nearly 50% since 2018 and exports declining by 40%. The weak domestic market for Long steel products, coupled with the overcapacity of local and international steel production, has left the business unsustainable despite ongoing efforts.
At the inaugural sectoral engagement convened by SEIFSA and the Department of Trade, Industry, and Competition (DTIC) in November 2024, it was unanimously agreed by stakeholders that radical interventions were required to address the decline in the steel and engineering value chain.
Frustrations with the government behind the scenes
It was reported at the media briefing that after months of warnings from ArcelorMittal about closing its steel operations, Minister of Trade, Industry and Competition Parks Tau intervened on 19 November 2024, when he sent a letter to ArcelorMittal requesting an urgent meeting with the company’s management.
The meeting, scheduled for 21 November 2024 and to be attended by Tau and his department officials, was aimed at finding ways for the government to help ArcelorMittal.
“The meeting didn’t go well,” said the source, adding that Tau didn’t even pitch for the meeting he requested in the first place. “It’s like the government didn’t take ArcelorMittal’s plea seriously.”
Discussions between ArcelorMittal and DTIC officials continued well into December, but failed to yield the necessary results, the company said. ArcelorMittal’s Verster said the company informed DTIC about the company’s decision to mothball the steel operations in Newcastle and Vereeniging. “There has been no feedback from the government,” said Verster, whose company decided to inform the public and shareholders on Monday about the closures.
Financial performance
The company anticipates a significant decline in earnings, with earnings per share expected to decrease to a loss within a range of R5.48 to R6.21 per share, compared to the previous year’s loss of R3.52 per share.
